Saver's Credit and Distributions from an inherited IRA

[Kimybrown]

I have a 401(k) through my employer and my wife gets distributions from an IRA she inherited. Do I enter her disitrubtions where it asks for them in the interview? We know she got more than the RMD each year for 2022 and 2023. 

Thanks!

[DawnC]

Yes.  Her distributions are reported on a 1099-R.   Where do I enter a 1099-R?  You won't get a Saver's credit if you have had distributions.  

When going through the Saver's credit interview, the information about the distributions should automatically populate if you have entered her 1099-R(s).   But if not, you should enter the amounts of distributions for tax years 2021-2024.  

[Hal_Al · Accepted solution]

Q.  Re: Saver's Credit and Distributions from an inherited IRA. Do I enter her distributions where it asks for them in the saver's credit interview? 

A. Apparently, No.  

From the form 8880 instructions for line 4:

"Don’t include any of the following.
• Distributions from an inherited IRA by a nonspousal beneficiary"

https://www.irs.gov/pub/irs-pdf/f8880.pdf

Good question. I didn't know this until I just looked it up and had assumed otherwise.  

[Kimybrown]

Thanks Champ! Ahhh! I see that in the instructions. I just didn't know the form number. Now, why are they taxing her whole distribution of $7,304 instead of just what's over the RMD?

[Hal_Al · Accepted solution]

That's a different subject.

Q. Why are they taxing her whole distribution of $7,304 instead of just what's over the RMD?

A. It sounds like you have a misunderstanding of what RMD is.  RMD is not tax free.  It just means you HAVE TO take that much out (and pay tax on it) each year. 

[dmertz]

"You won't get a Saver's credit if you have had distributions."

That's a very misleading statement.  Distributions from your own qualified retirement accounts, your spouse's qualified retirement accounts and any qualified retirement accounts inherited from a spouse reduce the amount of new retirement contributions that qualify you or your spouse for the credit, but, depending on the amount involved,  that won't necessarily eliminate the credit.